(TargetLiberty.org) – Typically November is the time of year retirees start working on completing their annual required minimum distribution (RMD) before the year ends. However, thanks to the CARES Act’s passage, some seniors don’t have to take them in 2020.
Passed on March 27, the Coronavirus Aid, Relief, and Economic Security (CARES) Act exempts a narrow group of seniors from having to take their regular withdrawals. Normally, a person must do so upon reaching the age of 70.5 years. However, under the CARES Act, they can wait until they reach 72.
So, what is the RMD, and how does it operate?
How the Required Minimum Distribution Works
Simply put, the RMD is the amount of money retirees must withdraw from their retirement accounts each year from their traditional IRA, Simple IRA, SEP IRA, or other retirement accounts.
Those withdrawals are taxed along with other income except for any portion of earnings already taxed or tax-exempt money like qualifying distributions from an individual’s designated Roth account.
The CARES Act extended the mandatory age for RMDs to offset stock market downturns related to the economic collapse accompanying the COVID-19 virus outbreak.
Financial experts say now is the perfect time for retirees exempted from making their RMDs this year to plan alternate strategies. For some, leaving the money in their retirement accounts might be best.
Depending on their circumstances, some might benefit from withdrawing some of the retirement and investing it in a Roth conversion. Doing so would enable a retiree to transfer some of their money from a traditional pre-tax account to a post-tax Roth IRA. They would have to pay taxes on that redistribution now, but would save on taxes in the future when they make withdrawals on that account.
This year, several viable options exist for retirees thanks to President Donald Trump signing the $2-trillion stimulus package into law. You might consider seeking financial advice from a retirement expert if this change applies to you.
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